H-P Sues to Stop Ex-Chief's Job

By

Robert A. Guth,

Ben Worthen And

Joann S. Lublin

Updated Sept. 8, 2010 12:01 a.m. ET

Hewlett-Packard
Co.
sued to block its former chief executive from joining rival
Oracle
Corp.
as a senior executive, alleging
Mark Hurd's
hiring breaches his exit agreement and will lead to a transfer of its trade secrets to a competitor.

Hewlett-Packard sued Mark Hurd, alleging its former CEO violated a confidentiality provision of his severance agreement by accepting a position with Oracle. Ben Pimentel and Julia Angwin discusses. Gold futures finish at a record high, in a sign that the flight away from risk is continuing to gain steam. Brett Arends discusses.

The suit, filed in Superior Court of California in Santa Clara County on Tuesday, seeks an injunction against Mr. Hurd and unnamed others who helped him join Oracle, and asks for unspecified damages.

Mr. Hurd, it claims, "is violating and will continue to violate his legal obligations" as a result of his Oracle appointment, according to the complaint. H-P also asked the court to appoint a "special master" to regularly review Mr. Hurd's compliance with his confidentiality agreement.

An H-P spokeswoman said, "Mark Hurd agreed to and signed agreements designed to protect H-P's trade secrets and confidential information. H-P intends to enforce those agreements."

In a statement Oracle CEO
Larry Ellison
said that his company and H-P have long been partners but by "filing this vindictive lawsuit" H-P's board "is acting with utter disregard for that partnership, our joint customers, and their own shareholders and employees." He added that the board "is making it virtually impossible for Oracle and H-P to continue to cooperate."

A spokesman for Mr. Hurd declined to comment.

The suit complicates Oracle's hiring of Mr. Hurd. A onetime H-P marketing partner, Oracle is expanding into H-P's core area of selling business computers. It named Mr. Hurd as co-president and a director late Monday.

Over the past few years, tech behemoths from
Intel
Corp.
to
Cisco Systems
Inc.
have pushed into new businesses, turning onetime partners into rivals. The H-P-Oracle feud is the latest to reflect this growing shift.

Oracle earlier this year completed a $7.4 billion acquisition of server-computer and software company Sun Microsystems Inc., and Mr. Ellison has said he intends to buy more computer companies. H-P is one of the world's largest computer hardware players by revenue, selling servers, storage systems and personal computers.

H-P's suit is the latest fallout of the bitter parting between Mr. Hurd and H-P, where he was CEO for five years before resigning last month following allegations by former contractor
Jodie Fisher
of sexual harassment.

Hurd's Tenure

H-P found that Mr. Hurd didn't violate the company's sexual harassment policy but determined that he violated its code of business conduct, including inaccurate expense reports that appeared to conceal a personal relationship with Ms. Fisher.

H-P's board has faced a backlash for the lucrative severance granted its former CEO. He left with an exit package that could be worth more than $35 million, depending on H-P's stock price.

People familiar with H-P's board have said the board was unhappy Mr. Hurd reached a private settlement with Ms. Fisher, precluding the board from completing an investigation about the sexual harassment allegations. A person familiar with Mr. Hurd's thinking has said H-P's investigation was complete. The H-P board isn't aware of any further allegations against Mr. Hurd, said people familiar with the matter.

While it isn't unusual for companies to sue departing executives to enforce exit agreements, H-P's suit Tuesday against Mr. Hurd is atypical in that former CEOs are rarely subject to such legal actions, experts said.

H-P's suit focuses on a confidentiality agreement, which restricts Mr. Hurd from disclosing sensitive information about his former employer.

Mr. Hurd's exit agreement didn't include a noncompete clause, which is hard to enforce in California state courts.

In California, it is difficult for a company to successfully sue a former employee who leaves for a competitor. But chances are better the higher in an organization an employee is, said Steven Zieff, an attorney at Rudy, Exelrod, Zieff & Lowe LLP.

In a case such as Mr. Hurd's, "I think a judge would be more open to an argument that there is a real and imminent danger that trade secrets would be inherently disclosed," Mr. Zieff said.

H-P's lead lawyer in the suit is
Allen Ruby,
a San Jose, Calif.-based attorney who in recent years has become known for working on criminal matters for high-profile clients, including baseball's Barry Bonds. Hiring Mr. Ruby "sends a message" to Oracle that H-P is "serious about fighting the case," said Jon Streeter, a partner at the San Francisco legal firm Keker & Van Nest, who has worked with and competed against Mr. Ruby in cases.

Still, Mr. Streeter said winning this case "is going to be an uphill climb for H-P," since California courts typically frown on agreements that limit employees' ability to switch companies. Most likely, he said, the case will end in a monetary settlement in which H-P receives some compensation from Oracle, effectively recouping some of the money it paid Mr. Hurd when he left H-P.

The suit signaled it would target others who recruited Mr. Hurd to Oracle, leaving the door open to amending its suit to include Oracle or Mr. Ellison at a future date.

Mr. Hurd holds deep knowledge of H-P's operations that could prove useful at Oracle. As CEO, he attended meetings where H-P's plans for future products were discussed, H-P's lawsuit alleges.

He also had access to pricing information and details about component and product costs, the suit said.

According to a document Oracle filed with the Securities and Exchange Commission Tuesday, Mr. Hurd will be "responsible for sales and marketing, consulting, support and Oracle's industry-specific global business units."

The filing added that "Mr. Hurd's hardware experience is particularly important to us given our recent acquisition of Sun Microsystems."

ENLARGE

H-P sued its former chief executive officer Mark Hurd, pictured at a 2007 industry event, one day after he was named co-president of rival Oracle.
Associated Press

Analysts have praised Oracle's hiring of Mr. Hurd, noting he brings expertise in operating a hardware company that Oracle's senior management currently lacks.

Oracle's stock was up 6%, or $1.34, to $24.26 a share in 4 p.m. trading Tuesday on the Nasdaq Stock Market.

In a statement Monday, Mr. Hurd touted Oracle's strategy of combining its core software expertise with hardware, an H-P hallmark. But his statement chose to focus on another Oracle competitor,
International Business Machines
Corp.

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